Trading Stmt/IFRS Report-Pt.1
Royal Bank of Scotland Group PLC
8 June 2005
PART 1
THE ROYAL BANK OF SCOTLAND GROUP PLC
Pre-close Trading Update for the half year ending 30 June 2005 and IFRS
Transition Report
Highlights:
Pre-close Trading Update
• The Group continues to perform well in the first half of 2005
• Strong overall income growth
• The Group's efficiency programme remains to plan to deliver previously
stated benefits
• Overall credit metrics expected to remain stable
• The integrations of Churchill, First Active and Charter One remain fully
on track
• Underlying profit growth remains broadly consistent with the comparable
period
IFRS Transition Report
2004 IFRS restated results relative to UK GAAP:
2004 Restatement - retrospective basis
• Income of £23,391 million, an increase of 3%
• Profit before tax of £7,284 million, an increase of 5%
• Basic adjusted earnings per share of 157.4p, an increase of 14%
• Adjusted earnings per share of 170.2p, a reduction of 1%
2004 Restatement - proforma (retrospective and prospective basis)
• Profit before tax, a reduction of around 5%
• Basic earnings per share, an increase of around 5%
• Adjusted earnings per share, a reduction of around 5%
Pre-close Trading Update
8 June 2005
Introduction
The Royal Bank of Scotland Group ('RBS') will be holding discussions with
analysts and investors ahead of its close period for the half year ending 30
June 2005. This statement sets out the information that will be covered in those
discussions.
Attached to this statement are RBS statutory results for 2004 restated under
International Financial Reporting Standards ('IFRS'). These reflect the IFRS
standards which are required to be applied to 2004.
In addition, RBS results for 2005 will also be affected by IAS 32, IAS 39 and
IFRS 4, which have been implemented from 1 January 2005. The comments in this
statement are based on underlying trends as if IFRS had applied in full to our
results for both 2004 and 2005. Proforma guidance on this basis is also included
in the attachment to this statement.
Summary
RBS has continued to perform well in the first half of 2005. Highlights of our
interim results for 2005 are expected to include continued strong organic growth
in income, stable overall credit metrics and the delivery of expected benefits
from recent acquisitions.
Income and Margins
Overall organic income growth remains strong, most notably in Citizens and
Corporate Banking and Financial Markets, tempered by a lower rate of income
growth in our UK Retail Markets business. UK Retail Markets, comprising Retail
Banking, Retail Direct and Wealth Management have, as anticipated at the time of
our 2004 results presentation in February, seen a degree of transition in
consumer behaviour away from unsecured lending which has reduced our growth in
income from this source. The impact upon the Group is however limited, as
unsecured lending to UK consumers accounted for less than 10% of our income in
2004.
The Group's net interest margin is expected to be lower primarily as a result of
changes in the business mix, including relatively strong growth in mortgages and
large corporate lending, coupled with lower growth in unsecured personal
lending.
Non-interest income has continued to grow, reflecting higher insurance premium
income, higher corporate banking fee income and higher dealing profits. RBS
Insurance has continued to increase its income, despite pressure on premium
pricing in motor insurance reflecting very competitive conditions.
Expenses
The Group's efficiency programme remains on track to deliver the anticipated
benefits, and whilst the Group cost:income ratio will marginally increase in
absolute terms as a result of the application of IFRS and the acquisition of
Charter One, the underlying trajectory is comparable to that on a UK GAAP basis.
Credit Quality and Provisions
Overall credit metrics are expected to have remained stable. Total provisions
are expected to be higher than in 2004, but the increase is expected to be below
the increase in average loans and advances. Provisions in UK Retail Markets have
risen, reflecting both growth in lending and increased credit card arrears
which, whilst higher than the historically low levels seen in recent years,
remain within normal parameters. Citizens' credit metrics remain strong, and
Corporate Banking and Financial Markets provision charges are expected to
reduce.
Integration Activity
The integrations of Churchill, First Active and Charter One remain fully on
track. In each case important stages in the IT conversion have been completed
successfully and we remain confident that we shall be able to deliver the
expected transaction benefits.
Profit
Strong overall income growth, coupled with our cost:income ratio and stable
credit quality, is expected to produce underlying growth in profit before tax
broadly consistent with that reported for the comparable period last year.
International Financial Reporting Standards
Following resolution of the uncertainties surrounding the interpretation of IAS
39 which we referred to at the time of our last IFRS update - in particular, in
relation to impairment and hedging - we estimate that the total impact on our
2004 adjusted earnings per share (before goodwill amortisation and integration
costs), had all IFRS applied, would have been a reduction of around 5% relative
to UK GAAP. We expect a similar impact on 2005 IFRS adjusted earnings per share
relative to UK GAAP earnings.
Sir Fred Goodwin, Group Chief Executive, commented:
'The Group continues to make good progress and, while the adoption of IFRS will
make interpretation of the trends in results generally more challenging this
year, the underlying strength of our business performance should be readily
apparent when we publish our interim results.'
CONTACTS
Sir Fred Goodwin Group Chief Executive 0131 523 2003
Fred Watt Group Finance Director 0131 523 2028
Richard O'Connor Head of Investor Relations 0131 523 5103
0207 672 1758
For media enquiries
Howard Moody Group Director, Communications 0131 523 2056
This announcement contains forward looking statements, including such statements
within the meaning of Section 27A of the US Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. These statements concern or may
affect future matters, such as RBS's future economic results, business plans and
strategies, and are based upon the current expectations of the directors. They
are subject to a number of risks and uncertainties that might cause actual
results and events to differ materially from the expectations expressed in the
forward looking statements. Factors that could cause or contribute to
differences in current expectations include, but are not limited to, regulatory
developments, competitive conditions, technological developments and general
economic conditions. These factors risks and uncertainties are discussed in
RBS's SEC filings, including, but not limited to, RBS's report on Form 6-K
containing this announcement and certain sections of RBS's Annual Report on Form
20-F. Information in this announcement of the price at which investments have
been bought or sold in the past or the yield on investments cannot be relied
upon as a guide to future performance. RBS assumes no responsibility to update
any of the forward looking statements contained in this announcement.
CONTENTS Page
SECTION 1
Introduction 2
Overview 3
SECTION 2
2004 Results
Results summary 6
Financial review 7
Summary consolidated income statements 9
Consolidated balance sheets 11
Divisional performance 14
Corporate Banking and Financial Markets 15
Retail Banking 17
Retail Direct 19
Manufacturing 21
Wealth Management 23
RBS Insurance 25
Ulster Bank 27
Citizens 29
Central items 31
Analysis of IFRS adjustments 33
SECTION 3
2005 Results 42
IFRS consolidated opening balance sheet at 1 January 2005 44
Analysis of IFRS adjustments 45
Reconciliation of shareholders' funds 46
Regulatory ratios 47
SECTION 4
Bases of preparation of IFRS results 49
Provisional accounting policies 50
Significant differences between UK GAAP and IFRS 59
Tesco Personal Finance ('TPF') 65
Reports by the auditors 67
Forward-looking statements 70
Restatements 71
Contacts 74
INTRODUCTION
In June 2002, the European Union ('the EU') adopted a regulation that requires,
from 1 January 2005, listed companies to prepare their consolidated financial
statements in accordance with International Financial Reporting Standards ('
IFRS') adopted by the EU.
As part of the process of moving to reporting under IFRS the Group is required
to restate statutory comparative figures for 2004 on the basis only of the
standards applicable at that time. Section 2 of this document contains such
restatement of the 2004 results and the auditors' report thereon is set out
on page 67.
A number of significant new standards are to be applied with prospective effect
from 1 January 2005, and to facilitate comparisons with our 2005 results in due
course, an overview of the impact on our 2004 results on a proforma basis of all
new standards is included on pages 3 and 4.
Sections 3 and 4 of the document provide further analysis of the impact of IAS
32, IAS 39 and IFRS 4 and of the provisional accounting policies of the Group
under IFRS together with an explanation of the differences between UK GAAP and
IFRS accounting policies.
The UK GAAP data included in this announcement are as published by the Group in
respect of its interim and full year 2004 results save for restatements of
divisional results reflecting the transfer of businesses between divisions and
the reallocation of pension costs to divisions from the Group Centre. These have
no effect on the Group's results.
The information in this announcement is based on IFRS expected to be applicable
at 31 December 2005. IFRS currently in issue, and adopted by the EU, are subject
to interpretation issued from time to time by the International Financial
Reporting Interpretation Committee. Further IFRS or interpretations may be
issued during 2005, which may also be applicable for 2005. In addition, as
market practice develops in respect of IFRS, alternative interpretations and
applications of IFRS may result.
OVERVIEW OF THE IMPACT OF IFRS
The following provides an overview of the impact of all IFRS on the reported
results of the Group on a proforma basis.
RESULTS
Income, expenses and impairment are affected by rules on recognition and timing
that are different to those followed under UK GAAP. While these do not change
the economics or cash flows of a transaction, they affect the level of reported
operating profit (profit before goodwill and integration costs), profit before
tax and earnings per share in any single period.
In addition, within the income statement, certain items are now reported on a
different line to that under UK GAAP. For example, the coupon payment on the
majority of the Group's preference shares, which are tier one capital
instruments, now appear 'above the line' within interest paid in net interest
income. While this will reduce reported operating profit and profit before tax,
it has no effect on earnings per share.
Similarly, goodwill is no longer amortised. This increases reported profit
before tax and basic earnings per share but has no impact on operating profit
and adjusted earnings per share. The Group has for many years excluded goodwill
amortisation from both of these measures.
The estimated impact of the full implementation of IFRS (retrospective and
prospective adjustments) on reported measures, subject to any further changes to
the standards or their interpretation, is as follows:
Adjusted earnings per share - a reduction of around 5% from that reported under
UK GAAP, representing the application of the new rules on recognition and
timing.
Basic earnings per share - an increase of around 10% with the impact of
recognition and timing more than offset by goodwill no longer being amortised.
Profit before tax - a reduction of around 5%, representing the impact of the
items affecting operating profit (above) in part offset by goodwill no longer
being amortised.
BALANCE SHEET
Application of IFRS also affects the reported balance sheet of the Group. In
addition new regulatory treatments apply to the calculation of Tier 1 and Total
Capital.
As a result of the restatement of the Group's 2004 results under IFRS and with
the impact of IAS 32, IAS 39 and IFRS 4 also included, the effect on
shareholders' funds and regulatory capital of the Group is as follows:
Regulatory Capital Ratios
Shareholders' Tier 1 Total
Funds Capital Capital
Reported under UK GAAP £31.9bn 7.0% 11.7%
At 31 December 2004
Reported under IFRS £29.9bn 6.7% 11.6%
At 1 January 2005
The analysis of the impact on shareholders' funds is shown on page 46; an
analysis of and the movement on capital ratios is shown on page 47.
SECTION 2
2004 Results
The financial information on pages 6 to 40 includes retrospective adjustments
only and does not reflect the effects of IAS 32, IAS 39 and IFRS 4.
RESULTS SUMMARY
Year ended
31 December 2004 Half year ended
30 June 2004
IFRS UK GAAP IFRS UK GAAP
£m £m £m £m
Total income 23,391 22,754 11,192 10,964
_______ _______ ______ _______
Operating expenses* 9,797 9,662 4,697 4,639
_______ _______ ______ _______
Operating profit before provisions* 9,334 9,612 4,505 4,602
_______ _______ _______ _______
Profit before tax, intangibles amortisation 7,849 3,767 3,851
and integration costs 8,101
_______ _______ _______ _______
Intangibles amortisation 45 915 4 413
_______ _______ _______ _______
Integration costs 520 269 178 57
_______ _______ _______ _______
Profit before tax 7,284 6,917 3,585 3,381
_______ _______ _______ _______
Cost:income ratio** 40.0% 40.8% 40.1% 40.6%
_______ _______ _______ _______
Basic earnings per ordinary share 157.4p 138.0p 79.7p 69.9p
_______ _______ ______ _______
Adjusted earnings per ordinary share*** 170.2p 172.5p 83.9p 84.4p
_______ _______ _______ _______
* excluding intangibles amortisation and integration costs.
** the cost:income ratio is based on operating expenses excluding
amortisation of purchased intangibles and integration costs, and after
netting operating lease depreciation against rental income.
*** adjusted earnings per ordinary share is based on earnings adjusted
for amortisation of purchased intangibles and integration costs.
The IFRS results shown above exclude the effects of IAS 32, IAS 39 and IFRS 4.
FINANCIAL REVIEW
The Group's 2004 results have been prepared in accordance with IFRS. As
permitted by IFRS 1, they do not reflect the effects of IAS 32, IAS 39 and IFRS
4. The commentary set out below explains the effect of IFRS as applied on a
retrospective basis to the full year 2004 results.
Income
Total income was £23,391 million, an increase of £637 million, 3% compared with
£22,754 million under UK GAAP. Income in Retail Banking benefited by £798
million from the consolidation of the life assurance business on a line-by-line
basis rather than the recognition of the change in embedded value as a single
amount in other operating income. Insurance net premium income in RBS Insurance
increased by £109 million due to proportional consolidation of Linea Directa,
our joint venture in Spain. These were partially offset by a reduction in income
due to the fact that TPF is proportionately consolidated under IFRS, and the
transfer of the net return on pension fund to operating expenses.
Operating expenses
Operating expenses, excluding amortisation of purchased intangibles and
integration costs, were £9,797 million, 1% or £135 million higher than under UK
GAAP. The increase was principally due to operating expenses of the life
assurance business (£106 million), share based payments (£36 million),
amortisation of capitalised software development costs (£27 million) and leasing
(£49 million). These were partially offset by the reduction in pension costs
reflecting the net return on pension fund.
Claims
Under IFRS, net insurance claims were £780 million or 22% higher at £4,260
million, reflecting the line-by-line consolidation of the life assurance
business and the proportional consolidation of Linea Directa.
Provisions
Provisions were £1,485 million, £26 million, 2% lower due to the proportional
consolidation of TPF.
Purchased intangibles amortisation
The amortisation of intangible assets was £870 million lower at £45 million.
Under IFRS goodwill is not amortised; instead it is tested annually for
impairment. The Group's purchased intangible assets include core deposit
intangibles and mortgage servicing rights. These are being amortised over their
expected economic lives.
Integration costs
Integration costs at £520 million were £251 million higher than reported under
UK GAAP. The increase reflects the amortisation of capitalised software
developed in respect of the integration of NatWest. Under IFRS, the costs of
internally developed software are capitalised and amortised over their useful
economic life; under the Group's UK GAAP accounting policy these costs were
written off as incurred. The total integration costs relating to the acquisition
of NatWest are unchanged. The change in accounting policy on software under IFRS
results in such costs being recognised in different accounting periods than
under UK GAAP.
Profit
Profit before tax was £7,284 million, £367 million, 5% higher than £6,917
million reported under UK GAAP. This reflects the fact that although profit
before tax, intangibles amortisation and integration costs was 3%, £252 million
lower at £7,849 million, this reduction is more than offset by non amortisation
of goodwill.
FINANCIAL REVIEW (continued)
Earnings and dividends
Basic earnings per ordinary share were 157.4p compared with 138.0p under UK
GAAP. The increase of 14% or 19.4p per ordinary share is mainly due to
non-amortisation of goodwill. Earnings per share adjusted for the amortisation
of purchased intangibles and integration costs were 1% or 2.3p per ordinary
share lower at 170.2p compared with 172.5p reflecting the impact of the
retrospective adjustments on recognition and timing described above.
The appropriation for ordinary dividends was £249 million less than under UK
GAAP. Under IFRS, dividends are recognised only when paid or approved by
shareholders.
Balance sheet
Total assets at 31 December 2004 increased by £4.7 billion under IFRS,
principally as a result of the consolidation of special purpose entities
established to facilitate customer transactions (£5.0 billion), the
non-amortisation of goodwill (£0.9 billion) and the capitalisation of software
development costs (£0.6 billion) partially offset by the proportionate
consolidation of TPF (£1.4 billion) and a reduction of £0.3 billion due to the
changes in accounting for operating and finance leases.
Note
The information in this announcement is based on IFRS expected to be applicable
at 31 December 2005. Further IFRS or interpretations may be issued during 2005,
which may also be applicable for 2005. In addition, as market practice develops
in respect of IFRS, alternative interpretations and applications of IFRS may
result.
SUMMARY CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2004
UK GAAP Effect IFRS
of IFRS
£m £m £m
Net interest income 9,208 (137) 9,071
_______ _______ _______
Non-interest income (excluding insurance premium income) 8,602 71 8,673
Insurance net premium income 4,944 703 5,647
_______ _______ _______
Non-interest income 13,546 774 14,320
_______ _______ _______
Total income 22,754 637 23,391
Operating expenses 9,662 135 9,797
_______ _______ _______
Profit before other operating charges 13,092 502 13,594
Insurance net claims 3,480 780 4,260
_______ _______ _______
Operating profit before provisions 9,612 (278) 9,334
Provisions 1,511 (26) 1,485
_______ _______ _______
Profit before tax, intangible assets amortisation 8,101 (252) 7,849
and integration costs
Amortisation of purchased intangible assets 915 (870) 45
Integration costs 269 251 520
_______ _______ _______
Profit on ordinary activities before tax 6,917 367 7,284
Tax on profit on ordinary activities 2,155 (160) 1,995
_______ _______ _______
Profit for period 4,762 527 5,289
Minority interests (250) 73 (177)
Preference dividends (256) - (256)
_______ _______ _______
Profit attributable to ordinary shareholders 4,256 600 4,856
_______ _______ _______
Ordinary dividends 1,837 (249) 1,588
_______ _______ _______
Basic earnings per ordinary share (Note 1 on page 40) 138.0p 19.4p 157.4p
_______ _______ _______
Adjusted earnings per ordinary share (Note 1 on page 40) 172.5p (2.3p) 170.2p
_______ _______ _______
The IFRS adjustments excluding IAS 32, IAS 39 and IFRS 4 are analysed on page
33.
SUMMARY CONSOLIDATED INCOME STATEMENT
FOR THE HALF YEAR ENDED 30 JUNE 2004 (unaudited)
UK GAAP Effect IFRS
of IFRS
£m £m £m
Net interest income 4,378 (67) 4,311
_______ _______ _______
Non-interest income (excluding insurance premium income) 4,170 5 4,175
Insurance net premium income 2,416 290 2,706
_______ _______ _______
Non-interest income 6,586 295 6,881
_______ _______ _______
Total income 10,964 228 11,192
Operating expenses 4,639 58 4,697
_______ _______ _______
Profit before other operating charges 6,325 170 6,495
Insurance net claims 1,723 267 1,990
_______ _______ _______
Operating profit before provisions 4,602 (97) 4,505
Provisions 751 (13) 738
_______ _______ _______
Profit before tax, intangible assets amortisation 3,851 (84) 3,767
and integration costs
Amortisation of purchased intangible assets 413 (409) 4
Integration costs 57 121 178
_______ _______ _______
Profit on ordinary activities before tax 3,381 204 3,585
Tax on profit on ordinary activities 1,048 (61) 987
_______ _______ _______
Profit for period 2,333 265 2,598
Minority interests (111) 30 (81)
Preference dividends (116) - (116)
_______ _______ _______
Profit attributable to ordinary shareholders 2,106 295 2,401
_______ _______ _______
Ordinary dividends 529 530 1,059
_______ _______ _______
Basic earnings per ordinary share (Note 1 on page 40) 69.9p 9.8p 79.7p
_______ _______ _______
Adjusted earnings per ordinary share (Note 1 on page 40) 84.4p (0.5p) 83.9p
_______ _______ _______
The IFRS adjustments excluding IAS 32, IAS 39 and IFRS 4 are analysed on page
34.
CONSOLIDATED BALANCE SHEET
AT 31 DECEMBER 2004
UK GAAP Effect IFRS
of IFRS
£m £m £m
Assets
Cash and balances at central banks 4,293 - 4,293
Items in the course of collection from other banks 2,629 - 2,629
Treasury bills and other eligible bills 6,110 - 6,110
Loans and advances to banks 58,260 184 58,444
Loans and advances to customers 345,469 1,782 347,251
Debt securities 91,211 2,697 93,908
Equity shares 2,960 1,763 4,723
Intangible fixed assets 17,576 1,666 19,242
Property, plant and equipment 16,294 134 16,428
Settlement balances 5,682 - 5,682
Other assets 22,255 183 22,438
Prepayments and accrued income 6,928 46 6,974
Long-term assurance assets 3,800 (3,800) -
_______ _______ _______
Total assets 583,467 4,655 588,122
_______ _______ _______
Liabilities
Deposits by banks 99,081 - 99,081
Items in the course of transmission to other banks 802 - 802
Customer accounts 285,062 (1,747) 283,315
Debt securities in issue 58,960 5,039 63,999
Settlement balances and short positions 32,990 - 32,990
Other liabilities 26,152 (1,368) 24,784
Accruals and deferred income 15,588 459 16,047
Post-retirement benefit liabilities 1,901 1,039 2,940
Provisions for liabilities and charges
- deferred taxation liabilities 2,873 (812) 2,061
- other provisions 198 4,142 4,340
Subordinated liabilities 20,366 - 20,366
Minority interests 3,829 (337) 3,492
Shareholders' funds 31,865 2,040 33,905
Long-term assurance liabilities 3,800 (3,800) -
_______ _______ _______
Total liabilities 583,467 4,655 588,122
_______ _______ _______
The IFRS adjustments excluding IAS 32, IAS 39 and IFRS 4 are analysed on page
37.
CONSOLIDATED BALANCE SHEET
AT 30 JUNE 2004 (unaudited)
UK GAAP Effect IFRS
of IFRS
£m £m £m
Assets
Cash and balances at central banks 3,140 17 3,157
Items in the course of collection from other banks 3,149 - 3,149
Treasury bills and other eligible bills 6,902 - 6,902
Loans and advances to banks 60,152 191 60,343
Loans and advances to customers 290,154 1,451 291,605
Debt securities 89,813 2,211 92,024
Equity shares 2,315 1,695 4,010
Intangible fixed assets 13,589 1,231 14,820
Property, plant and equipment 14,866 243 15,109
Settlement balances 10,288 - 10,288
Other assets 14,424 233 14,657
Prepayments and accrued income 5,943 41 5,984
Long-term assurance assets 3,531 (3,531) -
_______ _______ _______
Total assets 518,266 3,782 522,048
_______ _______ _______
Liabilities
Deposits by banks 84,120 3 84,123
Items in the course of transmission to other banks 996 - 996
Customer accounts 253,949 (1,585) 252,364
Debt securities in issue 51,721 3,838 55,559
Settlement balances and short positions 38,058 - 38,058
Other liabilities 17,301 76 17,377
Accruals and deferred income 13,862 237 14,099
Post-retirement benefit liabilities 1,490 618 2,108
Provisions for liabilities and charges
- deferred taxation liabilities 2,097 (359) 1,738
- other provisions 217 3,818 4,035
Subordinated liabilities 17,832 - 17,832
Minority interests 2,685 (348) 2,337
Shareholders' funds 30,407 1,015 31,422
Long-term assurance liabilities 3,531 (3,531) -
_______ _______ _______
Total liabilities 518,266 3,782 522,048
_______ _______ _______
The IFRS adjustments excluding IAS 32, IAS 39 and IFRS 4 are analysed on page
38.
CONSOLIDATED OPENING BALANCE SHEET
AT 1 JANUARY 2004
UK GAAP Effect IFRS
of IFRS
£m £m £m
Assets
Cash and balances at central banks 3,822 - 3,822
Items in the course of collection from other banks 2,501 - 2,501
Treasury bills and other eligible bills 4,846 - 4,846
Loans and advances to banks 51,891 1,011 52,902
Loans and advances to customers 252,531 662 253,193
Debt securities 79,949 1,199 81,148
Equity shares 2,300 1,745 4,045
Intangible fixed assets 13,131 896 14,027
Property, plant and equipment 13,927 320 14,247
Settlement balances 2,857 - 2,857
Other assets 17,807 247 18,054
Prepayments and accrued income 5,309 32 5,341
Long-term assurance assets 3,557 (3,557) -
_______ _______ _______
Total assets 454,428 2,555 456,983
_______ _______ _______
Liabilities
Deposits by banks 67,323 - 67,323
Items in the course of transmission to other banks 958 - 958
Customer accounts 236,963 (1,497) 235,466
Debt securities in issue 41,016 3,129 44,145
Settlement balances and short positions 21,369 - 21,369
Other liabilities 20,584 (1,019) 19,565
Accruals and deferred income 13,155 404 13,559
Post-retirement benefit liabilities 1,445 591 2,036
Provisions for liabilities and charges
- deferred taxation liabilities 2,036 (300) 1,736
- other provisions 213 3,882 4,095
Subordinated liabilities 16,998 - 16,998
Minority interests 2,713 (321) 2,392
Shareholders' funds 26,098 1,243 27,341
Long-term assurance liabilities 3,557 (3,557) -
_______ _______ _______
Total liabilities 454,428 2,555 456,983
_______ _______ _______
The IFRS adjustments excluding IAS 32, IAS 39 and IFRS 4 are analysed on page
39.
DIVISIONAL PERFORMANCE
The contribution of each division before amortisation of purchased intangibles
and integration costs and, where appropriate, Manufacturing costs is detailed
below.
Year ended 31 December 2004 UK GAAP Effect IFRS
of IFRS
£m £m £m
Corporate Banking and Financial Markets 4,350 (106) 4,244
Retail Banking 3,220 (8) 3,212
Retail Direct 964 (115) 849
Manufacturing (2,546) 27 (2,519)
Wealth Management 374 (17) 357
RBS Insurance 862 1 863
Ulster Bank 450 (2) 448
Citizens 1,061 - 1,061
Central items (634) (32) (666)
_______ _______ _______
Profit before amortisation of purchased intangibles 8,101 (252) 7,849
and integration costs
_______ _______ _______
Half year ended 30 June 2004 (unaudited) UK GAAP Effect of IFRS
IFRS
£m £m £m
Corporate Banking and Financial Markets 2,081 (19) 2,062
Retail Banking 1,613 (13) 1,600
Retail Direct 447 (44) 403
Manufacturing (1,227) 16 (1,211)
Wealth Management 188 (5) 183
RBS Insurance 395 (1) 394
Ulster Bank 212 (1) 211
Citizens 430 - 430
Central items (288) (17) (305)
_______ _______ _______
Profit before amortisation of purchased intangibles 3,851 (84) 3,767
and integration costs
_______ _______ _______
As set out on pages 71 to 73, 2004 results have been restated to reflect the
transfers of businesses between divisions.
CORPORATE BANKING AND FINANCIAL MARKETS
Year ended 31 December 2004 (unaudited) UK GAAP Effect IFRS
of IFRS
£m £m £m
Net interest income excluding funding cost of rental assets 3,040 (41) 2,999
Funding cost of rental assets (414) - (414)
_______ _______ _______
Net interest income 2,626 (41) 2,585
_______ _______ _______
Fees and commissions receivable 1,762 (25) 1,737
Fees and commissions payable (277) 23 (254)
Dealing profits (before associated direct costs) 1,895 - 1,895
Income on rental assets 1,282 - 1,282
Other operating income 381 55 436
_______ _______ _______
Non-interest income 5,043 53 5,096
_______ _______ _______
Total income 7,669 12 7,681
_______ _______ _______
Direct expenses
- staff costs 1,708 5 1,713
- other 421 40 461
- operating lease depreciation 610 73 683
_______ _______ _______
2,739 118 2,857
_______ _______ _______
Contribution before provisions 4,930 (106) 4,824
Provisions 580 - 580
_______ _______ _______
Contribution 4,350 (106) 4,244
_______ _______ _______
Contribution at £4,244 million, is £106 million or 2% lower than under UK GAAP.
The reduction principally reflects the changes in accounting for finance and
operating leases, fees eliminated on consolidation of special purpose entities
and the timing difference created by amortisation of internally developed
software which was previously written off as incurred under the Group's UK GAAP
accounting policy.
CORPORATE BANKING AND FINANCIAL MARKETS
Half year ended 30 June 2004 (unaudited) UK GAAP Effect IFRS
of IFRS
£m £m £m
Net interest income excluding funding cost of rental assets 1,465 (18) 1,447
Funding cost of rental assets (197) - (197)
_______ _______ _______
Net interest income 1,268 (18) 1,250
_______ _______ _______
Fees and commissions receivable 825 - 825
Fees and commissions payable (137) 11 (126)
Dealing profits (before associated direct costs) 1,025 - 1,025
Income on rental assets 618 - 618
Other operating income 160 31 191
_______ _______ _______
Non-interest income 2,491 42 2,533
_______ _______ _______
Total income 3,759 24 3,783
_______ _______ _______
Direct expenses
- staff costs 846 (16) 830
- other 214 19 233
- operating lease depreciation 303 40 343
_______ _______ _______
1,363 43 1,406
_______ _______ _______
Contribution before provisions 2,396 (19) 2,377
Provisions 315 - 315
_______ _______ _______
Contribution 2,081 (19) 2,062
_______ _______ _______
RETAIL BANKING
Year ended 31 December 2004 (unaudited) UK GAAP Effect IFRS
of IFRS
£m £m £m
Net interest income 3,123 (47) 3,076
Insurance net premium income - 594 594
Other non-interest income 1,657 252 1,909
_______ _______ _______
Total income 4,780 799 5,579
_______ _______ _______
Direct expenses
- staff costs 910 54 964
- other 261 51 312
_______ _______ _______
1,171 105 1,276
_______ _______ _______
Insurance net claims - 702 702
_______ _______ _______
Contribution before provisions 3,609 (8) 3,601
Provisions 389 - 389
_______ _______ _______
Contribution 3,220 (8) 3,212
_______ _______ _______
Contribution at £3,212 million is £8 million lower.
Virtually all of the IFRS adjustments arise from the consolidation of the life
assurance business on a line-by-line basis. As a result, net interest income
decreased by £47 million and non-interest income increased by £846 million.
Staff costs and other costs increased by £54 million and £51 million
respectively. Insurance net claims, which represent payments under assurance
contracts, were £702 million.
RETAIL BANKING
Half year ended 30 June 2004 (unaudited) UK GAAP Effect IFRS
of IFRS
£m £m £m
Net interest income 1,520 (21) 1,499
Insurance net premium income - 242 242
Other non-interest income 829 48 877
_______ _______ _______
Total income 2,349 269 2,618
_______ _______ _______
Direct expenses
- staff costs 440 31 471
- other 110 20 130
_______ _______ _______
550 51 601
_______ _______ _______
Insurance net claims - 231 231
_______ _______ _______
Contribution before provisions 1,799 (13) 1,786
Provisions 186 - 186
_______ _______ _______
Contribution 1,613 (13) 1,600
_______ _______ _______
RETAIL DIRECT
Year ended 31 December 2004 (unaudited) UK GAAP Effect IFRS
of IFRS
£m £m £m
Net interest income 851 (69) 782
Non-interest income 1,134 (139) 995
_______ _______ _______
Total income 1,985 (208) 1,777
_______ _______ _______
Direct expenses
- staff costs 247 2 249
- other 434 (68) 366
_______ _______ _______
681 (66) 615
_______ _______ _______
Contribution before provisions 1,304 (142) 1,162
Provisions 340 (27) 313
_______ _______ _______
Contribution 964 (115) 849
_______ _______ _______
Contribution at £849 million is £115 million, 12%, lower due principally to the
proportionate consolidation of Tesco Personal Finance ('TPF'). The change in the
accounting treatment of TPF does not affect the profit attributable to ordinary
shareholders as there is a commensurate reduction in minority interests.
RETAIL DIRECT
Half year ended 30 June 2004 (unaudited) UK GAAP Effect IFRS
of IFRS
£m £m £m
Net interest income 415 (37) 378
Non-interest income 530 (59) 471
_______ _______ _______
Total income 945 (96) 849
_______ _______ _______
Direct expenses
- staff costs 121 (3) 118
- other 220 (36) 184
_______ _______ _______
341 (39) 302
_______ _______ _______
Contribution before provisions 604 (57) 547
Provisions 157 (13) 144
_______ _______ _______
Contribution 447 (44) 403
_______ _______ _______
MANUFACTURING
Year ended 31 December 2004 (unaudited) UK GAAP Effect IFRS
of IFRS
£m £m £m
Staff costs 870 (144) 726
Other costs 1,676 117 1,793
_______ _______ _______
Total manufacturing costs 2,546 (27) 2,519
_______ _______ _______
Total manufacturing costs were £2,519 million, £27 million or 1% lower.
The charge for amortisation of software development costs is lower than the
amounts expensed under the Group's UK GAAP accounting policy. Staff costs are
reduced as amounts are capitalised while other costs are increased due to the
amortisation charge.
MANUFACTURING
Half year ended 30 June 2004 (unaudited) UK GAAP Effect IFRS
of IFRS
£m £m £m
Staff costs 432 (81) 351
Other costs 795 65 860
_______ _______ _______
Total manufacturing costs 1,227 (16) 1,211
_______ _______ _______
WEALTH MANAGEMENT
Year ended 31 December 2004 (unaudited) UK GAAP Effect IFRS
of IFRS
£m £m £m
Net interest income 403 - 403
Non-interest income 370 1 371
_______ _______ _______
Total income 773 1 774
_______ _______ _______
Expenses
- staff costs 262 - 262
- other 119 16 135
_______ _______ _______
381 16 397
_______ _______ _______
Contribution before provisions 392 (15) 377
Provisions 18 2 20
_______ _______ _______
Contribution 374 (17) 357
_______ _______ _______
Contribution at £357 million is £17 million or 5% lower principally due to the
amortisation of software development costs.
WEALTH MANAGEMENT
Half year ended 30 June 2004 (unaudited) UK GAAP Effect IFRS
of IFRS
£m £m £m
Net interest income 197 - 197
Non-interest income 173 - 173
_______ _______ _______
Total income 370 - 370
_______ _______ _______
Expenses
- staff costs 123 - 123
- other 57 5 62
_______ _______ _______
180 5 185
_______ _______ _______
Contribution before provisions 190 (5) 185
Provisions 2 - 2
_______ _______ _______
Contribution 188 (5) 183
_______ _______ _______
RBS INSURANCE
Year ended 31 December 2004 (unaudited) UK GAAP Effect IFRS
of IFRS
£m £m £m
Earned premiums 5,357 150 5,507
Reinsurers' share (413) (41) (454)
_______ _______ _______
Insurance premium income 4,944 109 5,053
Net fees and commissions (488) 7 (481)
Other income 478 (11) 467
_______ _______ _______
Total income 4,934 105 5,039
_______ _______ _______
Expenses
- staff costs 293 11 304
- other 299 15 314
_______ _______ _______
592 26 618
_______ _______ _______
Gross claims 3,724 102 3,826
Reinsurers' share (244) (24) (268)
_______ _______ _______
Net claims 3,480 78 3,558
_______ _______ _______
Contribution 862 1 863
_______ _______ _______
Contribution at £863 million was £1 million higher. The increases in income,
expenses and gross claims reflect the proportionate consolidation of Linea
Directa.
RBS INSURANCE
Half year ended 30 June 2004 (unaudited) UK GAAP Effect IFRS
of IFRS
£m £m £m
Earned premiums 2,631 70 2,701
Reinsurers' share (215) (21) (236)
_______ _______ _______
Insurance premium income 2,416 49 2,465
Net fees and commissions (210) 4 (206)
Other income 213 (4) 209
_______ _______ _______
Total income 2,419 49 2,468
_______ _______ _______
Expenses
- staff costs 152 5 157
- other 149 8 157
_______ _______ _______
301 13 314
_______ _______ _______
Gross claims 1,827 50 1,877
Reinsurers' share (104) (13) (117)
_______ _______ _______
Net claims 1,723 37 1,760
_______ _______ _______
Contribution 395 (1) 394
_______ _______ _______
ULSTER BANK
Year ended 31 December 2004 (unaudited) UK GAAP Effect IFRS
of IFRS
£m £m £m
Net interest income 550 - 550
Non-interest income 193 - 193
_______ _______ _______
Total income 743 - 743
_______ _______ _______
Expenses
- staff costs 176 - 176
- other 77 2 79
_______ _______ _______
253 2 255
_______ _______ _______
Contribution before provisions 490 (2) 488
Provisions 40 - 40
_______ _______ _______
Contribution 450 (2) 448
_______ _______ _______
Contribution at £448 million was £2 million lower due to the amortisation of
software development costs.
ULSTER BANK
Half year ended 30 June 2004 (unaudited) UK GAAP Effect IFRS
of IFRS
£m £m £m
Net interest income 256 - 256
Non-interest income 95 - 95
_______ _______ _______
Total income 351 - 351
_______ _______ _______
Expenses
- staff costs 86 - 86
- other 35 1 36
_______ _______ _______
121 1 122
_______ _______ _______
Contribution before provisions 230 (1) 229
Provisions 18 - 18
_______ _______ _______
Contribution 212 (1) 211
_______ _______ _______
CITIZENS
Year ended 31 December 2004 (unaudited) UK GAAP Effect IFRS
of IFRS
£m £m £m
Net interest income 1,594 - 1,594
Non-interest income 652 - 652
_______ _______ _______
Total income 2,246 - 2,246
_______ _______ _______
Expenses
- staff costs 572 - 572
- other 496 - 496
_______ _______ _______
1,068 - 1,068
_______ _______ _______
Contribution before provisions 1,178 - 1,178
Provisions 117 - 117
_______ _______ _______
Contribution 1,061 - 1,061
_______ _______ _______
The implementation of IFRS, other than IAS 32 and IAS 39, has not affected
Citizens' contribution.
CITIZENS
Half year ended 30 June 2004 (unaudited) UK GAAP Effect IFRS
of IFRS
£m £m £m
Net interest income 666 - 666
Non-interest income 255 - 255
_______ _______ _______
Total income 921 - 921
_______ _______ _______
Expenses
- staff costs 246 - 246
- other 190 - 190
_______ _______ _______
436 - 436
_______ _______ _______
Contribution before provisions 485 - 485
Provisions 55 - 55
_______ _______ _______
Contribution 430 - 430
_______ _______ _______
CENTRAL ITEMS
Year ended 31 December 2004 (unaudited) UK GAAP Effect IFRS
of IFRS
£m £m £m
Funding costs 267 - 267
Departmental and corporate costs 367 32 399
_______ _______ _______
Total Central items 634 32 666
_______ _______ _______
Total central items were £666 million, an increase of £32 million, or 5%
reflecting the cost of share based payments. Under IFRS, the fair value of
employee options at the date of grant is expensed on a straight line basis over
the vesting period. UK GAAP did not require the recognition of the cost of stock
options.
CENTRAL ITEMS
Half year ended 30 June 2004 (unaudited) UK GAAP Effect IFRS
of IFRS
£m £m £m
Funding costs 113 - 113
Departmental and corporate costs 175 17 192
_______ _______ _______
Total Central items 288 17 305
_______ _______ _______
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